SEC Publishes Management Discussion and Analysis Release in the Federal Register

On January 11, 2021, the US Securities and Exchange Commission (SEC) published amendments to Regulation S-K in the Federal Register. The amendments modernize, simplify, and enhance certain financial disclosures and are intended to:

  • Improve the readability of disclosures
  • Discourage repetition and disclosure of immaterial information
  • Reduce compliance burdens and costs for registrants

The amendments are provided for in Release No. 33-10890, Management’s Discussion and Analysis, Selected Financial Data, and Supplementary Financial Information. The final rule is a part of the SEC’s disclosure effectiveness initiative and long-standing commitment to a principles-based, registrant-specific approach to disclosures.

The final rules are effective February 10, 2021. Registrants may comply with the final amendments any time after the effective date, as long as they provide disclosure responsive to an S-K item in its entirety. Registrants are required to comply with the rule for their first fiscal year ending on or after August 9, 2021.

Below, we cover key provisions of the amendments and related improvements for registrants.


In December 2013, the SEC issued a staff report, Report on Review of Disclosure Requirements in Regulation S-K, as mandated by the Jumpstart Our Business Startups Act (JOBS Act).

Based on a recommendation in this report, the SEC staff initiated an evaluation of disclosure requirements to assess:

  • The information required
  • How and where the information is presented
  • How technology can be better leveraged to improve the disclosure requirements for both investors and registrants

In connection with this study, the SEC staff also received public input on how to improve registrant disclosures.

Key Provisions

As a result of its evaluation and public outreach, the SEC amended Regulation S-K to simplify compliance efforts for registrants and focus the disclosure requirements on material, relevant information. Specifically, the amendments:

  • Eliminate Item 301, Selected Financial Data
  • Streamline Item 302, Supplementary Financial Information
  • Enhance the disclosure requirements in Item 303, Management’s Discussion and Analysis (MD&A)

Item 301, Selected Financial Data

Item 301 requires registrants provide selected financial data in a comparative table for the last five fiscal years when required in registration statements and annual reports on Form 10-K.

The amendments eliminate Item 301. In its analysis, the SEC determined that, due to technology advancements since its adoption in 1970, the information required by Item 301 can be readily accessed using filings made on the Electronic Data Gathering, Analysis, and Retrieval system (EDGAR).

The SEC also noted that a discussion and analysis of material trends is required by Item 303, which makes the five years of selected financial data unnecessary.

Item 302, Supplementary Financial Information

Item 302(a) requires disclosure of selected quarterly financial data for each quarter in the last two years. The SEC noted that the information required by Item 302(a) is repetitive and can generally be found in prior quarterly filings or be calculated for the fourth quarter from registrants Form 10-K and third quarter Form 10-Q.

Under the amendments, the requirement to provide quarterly tabular disclosure is replaced with a principles-based requirement to disclose the effects of material retrospective changes. Registrants will be required to provide an explanation of the reasons for these material changes and to disclose, for each affected quarterly period and the fourth quarter in the affected year, summarized financial information related to the statements of comprehensive income and earnings per share reflecting the changes.

The disclosure required under amended Item 302(a) is limited only to the affected quarters and will apply beginning with the first filing on Form 10-K after the registrant’s initial registration of securities under Sections 12(b) or 12(g) of the Securities Exchange Act of 1934.

Item 303, Management’s Discussion and Analysis

Item 303 requires disclosure of information relevant to assessing a registrant’s financial condition, changes in financial condition, and results of operations.

The amendments add a new Item 303(a) to include the objective of MD&A, which provides overarching requirements that apply throughout amended Item 303. The objective calls for disclosure from management’s perspective of material information, material events and uncertainties, and material financial and statistical data.

The amendments also clarify that when there are material changes in a financial statement line item, including where material changes within a line item offset one another, both quantitative and qualitative disclosure of the underlying reasons for those material changes is required.

If the registrant determines a discussion of a business’s segment information or other subdivisions—such as geographic areas or product lines—is necessary to understand the business, the discussion must focus on each relevant reportable segment or other subdivision of the business and the registrant as a whole.

Liquidity and Capital Resources

The amendments require a registrant to discuss its short-term and long-term material cash requirements from known contractual and other obligations—not limited to commitments for capital expenditures. A registrant must also specify the anticipated source of funds needed to satisfy these cash requirements and the general purpose of the requirements.

A registrant also must discuss, among other things, any known trends or any known demands, commitments, events, or uncertainties that will result in, or that are reasonably likely to result in, the registrant’s liquidity increasing or decreasing in any material way. It must also indicate any expected material changes in the mix and relative cost of such resources.

Results of Operations

The amendments require a description of any unusual or infrequent events or transactions or any significant economic changes that materially affected the amount of reported income from continuing operations.

In each case, a registrant must indicate the extent to which income was affected and provide a description of any other significant components of revenues or expenses that, in the registrant’s judgment, would be material to an understanding of its results of operations.

The amendments also require a registrant to disclose the following:

  • Provide a description of known trends or uncertainties that have had, or are reasonably likely to have, a material favorable or unfavorable impact on net sales or revenues, or income from continuing operations.
  • Include a description of known events that are reasonably likely to cause a material change in the relationship between costs and revenues.
  • Describe any known trends or uncertainties that have had, or that the registrant reasonably expects will have, a favorable or unfavorable material impact on net sales or revenues, or income from continuing operation.

If the statement of comprehensive income present material changes—material increases or decreases—in net sales or revenue from period to period, the amendments clarify that a discussion of these changes is required, attributable to:

  • Changes in prices
  • Changes in the volume or amount of goods or services being sold
  • The introduction of new products or services

Results of Operations—Inflation and Price Changes

The amendments eliminate Item 303(a)(3)(iv) and Instructions 8 and 9 to Item 303(a) under the existing rules.

Under the amended Item 303, a registrant will be required to discuss the impact of inflation and changing prices only if they’re part of a known trend or uncertainty that:

  • Had, or is reasonably likely to have, a material impact on net sales or revenue, or income from continuing operations
  • Result in material changes in one or more financial statement line items

Off-Balance Sheet Arrangements

The amendments replace the current prescriptive disclosure requirements within Item 303 with a principles-based instruction.

It requires registrants integrate disclosures of off-balance sheet arrangements within the context of broader MD&A disclosures, such as part of the Liquidity and Capital Resources discussion, rather than a separately captioned disclosure.

Contractual Obligations

As part of the SEC’s effort to promote the principles-based nature of MD&A, the amendments no longer require registrants to provide a contractual obligations table.

Interim Periods

The amendments allow for flexibility when disclosing comparisons of the most recently completed quarter. A registrant will be permitted to compare their most recently completed quarter to either the corresponding quarter of the prior year or to the immediately preceding quarter.

A registrant that elect to compare to the immediately preceding quarter is required to include summarized financial information of that quarter or identify the location of the prior filing that presents that information. The discussion of material changes in results of operations must identify any significant elements of the registrant’s income or loss from continuing operations that don’t arise from, or aren’t necessarily representative of, the registrant’s ongoing business.

Critical Accounting Estimates

The amendments codify existing SEC interpretive guidance and now explicitly require disclosure of critical accounting estimates, defined as an estimate made in accordance with generally accepted accounting principles that involve a significant level of estimation uncertainty and has had, or is reasonably likely to have, a material impact on the registrant’s financial condition or result of operations.

Registrants are required to disclose:

  • Why each critical accounting estimate is subject to uncertainty
  • How much each estimate or assumption has changed during the period
  • The sensitivity of the reported amounts to methods, assumptions, and estimates underlying the calculation

These disclosures should supplement, but not duplicate, the description of accounting policies or other disclosures contained in the financial statements. 

Effective Dates

The amendments are effective February 10, 2021. Registrants will be required to comply with the amended rules for their first fiscal year ending on or after August 9, 2021.

Registrants may comply with the final amendments any time after the effective date, as long as they provide disclosure responsive to an amended item in its entirety.

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